Nexstar CEO Sees Second Half Remaining Strong

Headlines are screaming about inflation and a possible recession, but Nexstar Media Group Chairman-CEO Perry Sook is nonplused.

“Based on what we’re seeing, there’s little to suggest that the current macro-economic uncertainty will have a material impact on our business,” he told analysts in the company’s quarterly conference call Thursday morning.

“This is consistent with recent positive corporate earnings results across a variety of industries, as well as broad-based economic data including consumer spending, employment levels and payrolls, and industrial manufacturing, all of which remain healthy. In addition, we have the benefit of the 2022 mid-term election cycle, which by all accounts will be another record year for political ad spending,” Sook said.

Political spending is pacing ahead of the 2020 presidential year — although he’s not yet willing to predict this year will top that record — and is well ahead of the 2018 mid-term, more than making up for the decline in auto advertising.

“While Q3 core advertising at the station level is pacing slightly behind 2021, primarily due to political squeeze-out, softness in national advertising, and a comp to Q3 in 2021, which included the Tokyo Olympics, there are several bright spots among our advertising categories,” Sook said.

“First, approximately half of our television advertising categories are pacing up for the quarter. The station advertising categories which are pacing up the most for the third quarter to date include some of our most stalwart categories, such as attorneys, drug stores, home repair, manufacturing, as well as telecom and entertainment. The categories that are pacing down the most in Q3 include sports betting, insurance and government services, most of which is unrelated to the economy,” Sook said.

As other broadcasters have reported, sports betting tends to pull back after initial heavy advertising for customer acquisition as each state come online with legal betting. Sook noted that Ohio will begin sports betting next year and legalization has recently passed in Kansas and Massachusetts. Also, sports betting initiatives are on the ballot in November in California, which would be a huge addition to the market.

With Netflix recently announcing its entry into advertising sales, Sook, without naming names, got in a jab at the subscription streaming giant’s CEO, Reed Hastings. “While the CEO of a streamer that now faces new competition is wrongly predicting the demise of our sector — by the way, something we’ve been hearing for over 25 years — while at the same time now copying our business model, we will intend to keep just doing what we do best: executing, innovating, exceeding estimates, and growing and creating shareholder value,” Sook declared.

Nexstar President-COO Tom Carter offered more details on the second quarter, where Nexstar’s total TV advertising grew 15.7% to $499.7 million. Core slipped 2.5% to $413 million, while political soared 920% (from election-light 2021) to $86.7 million.

“The two-and-a-half percent year-over-year core advertising decline was primarily driven by the categories of insurance, automotive, direct responsive, government spending related to COVID-19 and package goods,” Carter said.

He added: “Positive performance was delivered by the categories of entertainment, home repair and manufacturing, and related categories of carpet, flooring and covering, air conditioning and heating, as well as fast food and restaurants, among others. In addition, Nexstar’s local sales initiatives continued to deliver healthy levels of new business, with our sales teams generating new-to-television revenue of $36 million, up 10% over the prior year.”

As for the second quarter all-time record of $86.7 million in political spending, Carter said it was approximately 80% ahead of pro-forma for the same quarter in 2018. PAC and issue advertising accounted for approximately 41% of the spending, governor and senate candidates 37%, and all others 22%.

During Q&A, Sook was asked for more detail about current quarter pacings.

“As it relates to Q3, July’s in the books and it looks like a carbon copy of Q2. Distribution, digital, political all leading the charge in terms of our growth to the upside, with core revenue performing slightly under last year. Thematically, we see that through the remainder of the quarter. However, as you get into August and September here, there will be crowd-out from political, given that we expect a nine-digit gross political number in the quarter, which is substantially higher than we saw in Q2,” said the CEO

“Automotive for the third quarter is pacing down a low single digit to the prior year. Two points on that: One is that automotive spend is now down to about 15% of our core ad spend, which is where it was in 2008 and 2009, during the recession and credit crisis. Quite frankly, we don’t see it going any lower as a percent of our ad spend and think that it’s on the upside from here. We think the current conditions of supply chain and lack of inventory probably persist through the end of the year, but we think this will be a tailwind for us in 2023,” Sook said.

As for other categories, he said they look a lot like the second quarter.